Upgrading Asia and EM to 4.0 stars “Very Attractive”: The AI engine is broadening

• AI remains the key growth engine for Asia, with South Korea, Taiwan and China among the region’s main beneficiaries. South Korea and Taiwan, in particular, continue to see tight supply and strong order demand, translating into robust growth at both the corporate and broader economic level.
  
  
• The earnings impact is becoming broader. AI-related growth is spreading beyond leading semiconductor companies into industrials, materials, specialty manufacturing and other parts of the technology value chain. This broadening was particularly evident in China, where earnings momentum strengthened significantly in 2Q2026 compared with the previous quarter.
  
  
• Singapore provides valuable diversification within the regional story. Its indirect semiconductor exposure through manufacturing and industrial activity is complemented by strong banks, dividend yields of more than 4% and a more defensive market structure, offering investors an alternative destination for capital when sentiment toward higher-beta AI markets turns cautious.
  
  
• Valuations have become more compelling following the 3Q2026 correction. With Asia ex-Japan and EM forward P/E multiples trading below the one-standard-deviation levels of their 10-year averages while earnings momentum remains strong, we upgrade both markets from 3.0 stars “Attractive” to 4.0 stars “Very Attractive”.

Asia ex-Japan (AxJ) and Emerging Market (EM) equities continued to lead global markets in the first nine months of 2026, although the path higher became considerably more volatile in the third quarter. Several of the region’s strongest-performing AI-exposed markets, including South Korea and Taiwan, experienced sharp corrections in July as investors questioned whether the extraordinary pace of AI investment could be sustained.

Yet beneath the market volatility, the fundamental picture has remained far more resilient than recent price action might suggest. Major US hyperscalers raised their capital-expenditure plans again during the quarter: Alphabet increased its guidance by USD15 billion to USD195–205 billion, Amazon lifted spending by USD20 billion to USD220 billion, while Meta raised the lower end of its capex range to USD130–145 billion.

At the same time, earnings momentum across the region has strengthened significantly, with Asia ex-Japan earnings rising 69% YoY in 2Q2026 and Emerging Market earnings increasing 40% YoY. This suggests that the AI investment cycle is increasingly translating into actual corporate earnings rather than remaining purely a valuation-driven theme.

With capital spending remaining robust and earnings growth continuing to improve, we believe Asia ex-Japan and EM equities still have meaningful room to run into 4Q2026 and beyond.

Figure 1: Asian and EM equities led global markets in 9M2026

South Korea and Taiwan: AI remains the defining growth engine

Our highest-conviction theme remains the Asian semiconductor supply chain, particularly South Korea and Taiwan. The AI investment cycle is increasingly moving into actual orders, utilisation rates, pricing and earnings.

South Korea: Memory remains at the centre of the AI build-out

South Korea’s advanced memory leaders, Samsung Electronics and SK Hynix, continue to strengthen their competitive position. According to Counterpoint Research, their combined share of the High Bandwidth Memory (HBM) market increased from 79% in 1Q2026 to 83% in 2Q2026, supported in part by Samsung’s rising presence following the shipment of HBM4. This reinforces South Korea’s position as one of the clearest beneficiaries of rising demand for AI accelerators and data-centre infrastructure, helping to drive a sharp acceleration in semiconductor earnings during 2Q2026.

Importantly, we do not expect this strength to be confined to a single quarter. The supply-demand backdrop remains highly supportive. SK Hynix has secured five-year supply agreements with more than 10 major technology customers, allocating capacity through 2027 and beyond, while Samsung Electronics has locked in long-term agreements covering approximately 70% of its memory production capacity through 2031. At the same time, meaningful additions to manufacturing capacity are expected to come only gradually from 2028 onwards.

Against this backdrop, memory pricing should remain resilient in the near term. TrendForce expects conventional DRAM prices to rise another 10–15% and blended HBM prices by 15–20% in 4Q2026, even as the pace of price increases moderates from previous quarters.

The strength is also increasingly visible in the broader economy. South Korean semiconductor exports surged 263% YoY in September, exceeding USD60 billion for the first time. Business sentiment remains equally robust, with the Korea Chamber of Commerce and Industry’s Business Survey Index for the semiconductor industry rising to 139, the highest level since the survey began.

Taken together, this gives the current memory cycle a fundamentally different character from a conventional inventory-led semiconductor rebound. Capacity remains constrained, customers are securing supply years in advance, and demand is being supported by a structural rise in computing intensity. This provides stronger earnings visibility and supports our constructive view on South Korea’s semiconductor sector.

Taiwan: The bottleneck at the centre of advanced computing

Taiwan represents the second critical pillar of Asia’s AI investment story. Electronic-parts exports reached a record USD32.22 billion, rising 58% YoY, while integrated-circuit exports increased 60%, reflecting continued strength in global AI and high-performance computing demand.

TSMC remains the anchor of this ecosystem. Its 3nm process has become industry standard for high-performance computing, AI and premium mobile devices and  has made it a key bellwether for global semiconductor demand. August revenue reached a record NTD514.8 billion, up 53% YoY, taking January–August revenue growth to 39.3%., while its next-generation 1.6nm-class process has completed validation, with mass production scheduled to begin in 4Q2026.

Importantly, however, Taiwan’s role in the AI supply chain extends well beyond TSMC. MediaTek is emerging as an important beneficiary of the shift toward custom AI silicon. Its first-generation AI ASIC is scheduled to enter mass production in 4Q2026, while the company has secured a significant share of Google’s TPU v9 orders, with mass production expected in early 2028. Reflecting this growing opportunity, MediaTek raised its 2027 AI ASIC market-share target to 15–20% from 10–15%. At the system level, Hon Hai Technology Group has evolved far beyond its traditional role as an iPhone assembler and now commands more than 40% of the global AI-server market. As a key manufacturing partner for Nvidia’s GB200 and Blackwell systems, as well as upcoming Vera Rubin server racks, the company reported a 47% YoY increase in third-quarter revenue.

Together, these developments show that Taiwan’s AI growth is becoming increasingly broad-based. From advanced-node manufacturing at TSMC and custom silicon at MediaTek to AI-server production at Hon Hai, Taiwan is capturing value across multiple layers of the AI hardware stack. This reinforces its position as one of the world’s most complete AI technology ecosystems and supports our constructive view on Taiwanese equities.

We maintain South Korea and Taiwan at 4.0 stars, “Very Attractive”, and Asia Semiconductors at 4.5 stars.

China’s AI growth is expanding across sectors

China's headline macroeconomic story remains challenging. The property downturn continues to weigh on confidence and household demand remains subdued. But focusing exclusively on these weaknesses risks overlooking an increasingly important shift beneath the surface: technology and advanced manufacturing are emerging as a separate engine of earnings growth.

Integrated-circuit manufacturing output grew more than 20% in August, while IC exports surged 103.9% in the first eight months of the year, making integrated circuits China’s largest export category. The domestic memory ecosystem is also advancing rapidly. ChangXin Memory Technologies (CXMT) has emerged as the world’s fourth-largest DRAM producer, with around 10% global market share as of 2Q2026. Major international PC manufacturers, including HP, Dell, Asus and Acer, have qualified or evaluated CXMT’s DRAM products as customers seek to diversify their supply chains. Apple has also reportedly tested CXMT memory chips for use across selected product lines. Meanwhile, Yangtze Memory Technologies Co. (YMTC) now accounts for more than 10% of global NAND output and has filed for a RMB33 billion listing on Shanghai’s STAR Market. These developments point to the rapid growth of China’s domestic memory industry, with local suppliers gaining both scale and broader customer acceptance.

The investment implications extend beyond chipmakers themselves. As semiconductor localisation and AI infrastructure spending accelerate, the earnings benefits should increasingly flow upstream into industrial equipment, materials, power infrastructure and other parts of the manufacturing ecosystem. That has translated to a broader 25% YoY earnings growth for 2Q2026, improving from narrowly focused growth on information technology in 1Q26.

China does not necessarily need a powerful consumer or property recovery for the equity market to generate earnings growth. Technology, AI infrastructure and advanced manufacturing can provide a second earnings engine even while traditional parts of the economy remain soft. Therefore, we maintain China at 3.5 stars, “Attractive”.

Singapore: Where AI exposure meets income and defensiveness

Singapore is participating in the same technology-led manufacturing cycle. Electronics output rose 28.5% YoY in August, supported by strong demand for servers, semiconductors and data-storage products, while precision-engineering output increased 33.9%. Singapore's role as a major aerospace maintenance, repair and overhaul hub also provides another structural industrial-growth engine as Asia's aviation fleet expands.

However, Singapore's appeal lies just as much in what makes it different from the region's more technology-heavy markets.

Its financials-dominated equity index provides a more defensive earnings profile, supported by profitable banks and dividend yields of more than 4%. That defensive characteristic becomes especially valuable when AI-related markets experience valuation-driven corrections. Investors can remain exposed to the broader Asian growth story without relying entirely on high-beta semiconductor stocks.

Domestic market reforms provide another potential catalyst. On 29 September, MAS allocated SGD1.45 billion to a third batch of asset managers under initiatives aimed at broadening participation in Singapore equities and attracting additional capital into the local market.

This gives Singapore a useful role within a broader Asia portfolio: participation in the region's industrial and technology expansion, combined with income, financial-sector resilience and lower dependence on a single growth theme. We maintain Singapore at 4.0 stars, “Very Attractive”, while continuing to favour selected small- and mid-cap companies where stronger earnings momentum and valuation re-rating could provide additional upside.

Related article: Singapore Outlook 4Q26: Earnings and income carry the STI as reforms run further

India: Earnings are recovering, but macro headwinds complicate the story

India remains our least preferred major market within Asia and Emerging Markets.

This does not mean the earnings backdrop is weak. Earnings growth has improved to around 8% YoY in 2Q26, supported by consumer-facing sectors, financials and IT services. India's IT-services companies also provide a different form of AI exposure from Korea and Taiwan: rather than supplying chips or manufacturing equipment, they stand to participate in the adoption, integration and monetisation of AI by global enterprises.

The challenge is that the improving earnings story is running into a less supportive macroeconomic environment. Headline inflation accelerated to 4.8% YoY in August from 4.4% in July, while core inflation rose to 4.2%. With inflation above the RBI's 4% target, a weaker rupee and elevated oil prices could increase the risk of tighter policy.

India therefore faces a less favourable combination than several other Asian markets: earnings are improving, but macro risks constrain the scope for valuation expansion, while its direct exposure to the strongest part of the current global investment cycle — AI hardware — remains comparatively limited. We maintain India at 2.0 stars, “Unattractive”.

Broadening earnings, better valuation: The stronger case for AxJ and EM equities

The most important development in our 4Q2026 outlook is not simply that AI remains strong. It is that earnings growth is becoming broader at the same time that the region's strongest structural growth engine remains intact.

We see four increasingly complementary layers of support.

First, technology remains the primary engine. Semiconductors, HBM, advanced foundry and AI infrastructure continue to deliver the strongest earnings momentum, particularly in South Korea and Taiwan. Capacity utilisation remains high, supply is constrained and hyperscaler capex continues to expand.

Second, the investment cycle is spreading into industrials and materials. Building AI infrastructure requires much more than chips. Semiconductor fabrication plants, data centres, advanced packaging facilities and power infrastructure require equipment, chemicals, components and materials. This allows the AI capex cycle to increasingly feed into a broader set of Asian companies.

Third, domestic sectors are strengthening the earnings base. Financials are benefiting from capital-market activity and wealth-management demand, while ASEAN banks continue to generate healthy earnings. Consumer demand remains supportive in selected markets including Korea, Taiwan and India.

Fourth, Asia and EM offer greater diversification within the AI theme itself. Investors can access memory through South Korea, advanced foundry through Taiwan, semiconductor localisation through China, and more defensive financial and industrial exposure through Singapore. This reduces reliance on any single high-beta AI market and creates more ways for earnings growth to translate into portfolio returns.

The valuation picture strengthens the investment case further. Following the recent correction, the MSCI Asia ex Japan Index is trading at 11.9x forward P/E, below the one-standard-deviation level of its 10-year average of 12.4x (Figure 2). Similarly, the MSCI Emerging Markets Index is trading at 11.4x forward P/E, slightly below its one-standard-deviation level of 11.5x (Figure 3).

Figure 2: MSCI Asia ex Japan trades around one standard deviation below its 10-year average forward P/E

Figure 3: MSCI Emerging Markets trades around one standard deviation below its 10-year average forward P/E

This creates a more compelling risk-reward backdrop: investors are gaining exposure at more attractive valuations just as the earnings cycle remains firmly intact and, importantly, is broadening beyond the initial AI beneficiaries. In our view, this combination of cheaper valuations and stronger earnings breadth provides a greater margin of safety and supports further upside into 4Q2026 and beyond.

Against this backdrop, we upgrade Asia ex-Japan and Emerging Market equities from 3.0 stars, “Attractive”, to 4.0 stars, “Very Attractive”.

Table 1: Recommended Products

Market / Sector	Recommended Products
Emerging Markets	JPMorgan Funds - Emerging Markets Dividend A (mth) USD Vanguard FTSE Emerging Markets Index Fund ETF Shares (NYSE: VWO)
Asian Markets	M&G (Lux) Asian A Acc USD Fidelity Asia Pacific Dividend A-USD iShares Core MSCI Asia ex Japan ETF (HKEX: 3010)
Asia Semiconductors	Global X Asia Semiconductor ETF (HKEX:3119)
South Korea	LionGlobal Korea USD Franklin FTSE South Korea ETF (NYSE: FLKR)
Taiwan	Franklin FTSE Taiwan ETF (NYSE: FLTW)
Singapore	iFAST-Amova Singapore Equity A SGD Amova Singapore STI ETF (SGX: G3B)
China	Fidelity China Focus A-SGD T. Rowe Price Funds SICAV - China Evolution Equity A USD
China Tech	iShares Hang Seng Tech ETF (HKEX:3067) GF CSI All-Share Information Technology ETF (SZSE:159939)

Table 2: Earnings projections for the MSCI Asia ex Japan Index

MSCI Asia ex Japan Index	FY25	FY26E	FY27E	FY28E
PE Ratio (X)	21.0	14.8	12.1	10.8
Earnings Growth (YoY%)	10.3%	42.0%	22.0%	12.0%
Earnings Per Share	54.0	76.6	93.5	104.7
Dividend Yield (%)	1.7%	2.0%	2.1%	2.3%
Target Price (USD)				1,518
Based on 14.5X fair P/E ratio
Upside Potential (%)				34.1%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 30 Sept 2026.

Table 3: Earnings projections for the MSCI EM Index

MSCI Emerging Market Index	FY25	FY26E	FY27E	FY28E
PE Ratio (X)	19.6	13.7	11.8	10.4
Earnings Growth (YoY%)	8.6%	43.2%	15.6%	13.5%
Earnings Per Share	87.1	124.7	144.2	163.6
Dividend Yield (%)	1.9%	2.0%	2.1%	2.2%
Target Price (USD)				2,209
Based on 13.5X fair P/E ratio
Upside Potential (%)				29.5%
Source: Bloomberg Finance L.P., iFAST Estimates. Data as of 30 Sept 2026.

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.